MD MORNING MARKETS 12-10-18

The ASX200 is down 5 points in mid market trade after another shocker night on Wall St. Off the lows as US futures +ve. Gold and Materials ↑, Energy ↓. Trading updates for FXJ, DHG, NEC. Chinese trade data and RBA stability review later today.#ausbiz

m5m6m7TODAY

  • EX-dividend – Future Generation Investment Company (FGX) 2.3c, Sigma Healthcare (SIG) 1.5c, WAM Active (WAA) 2.9c, Research (WAX) 4.8c, WAM Leaders (WLE) 2.5c, WAM Microcap (WMI) 4.0c
  • RBA Financial Stability Review
  • Economic data – Home Loans
  • Chinese data – Balance of Trade (Exports/Imports), FDI (YTD), New Yuan Loans, Outstanding Loan Growth, Vehicle Sales

TONIGHT

  • European data – Industrial Production
  • US economic data – Export Prices, Import Prices, Univ. of Michigan Consumer Sentiment – prelim
  • US earnings – JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) unoffically kick off 3Q earnings season tonight

COMPANY NEWS

  • Senate Standing Committee into financial Services continues today. ANZ on the stand after CBA and Westpac Performance yesterday.
  • Fairfax Media (FXJ) – FY19 year-to-date overall group revenues are 5% below last year. Domain digital revenue is up 6% and total revenue is 1% lower; Metro Media is down around 1%, with Metro publishing flat; Australian Community Media is down around 10%; Stuff (New Zealand Media) is down around 16% including currency impact (down around 15% in local currency NZ$); Macquarie Media is up around 3% (up 4% on a continuing business basis excluding the impact of disposals); Cost savings measures continue to be implemented.
  • Nine Entertainment (NEC) – Trading Update. Metro FTA advertising market has been slightly softer than expected since end FY18 but NEC’s share has been ahead so NEC’s Metro FTA advertising revenue was broadly flat on Q1 FY18 compared ot SepQ, adjusted for the one less week in FY19. Nine’s digital revenues were around 10% ahead for the September quarter. Nine continues to expect FY19 Group EBITDA of $280-300m, before Specific Items.
  • Domain (DHG) – Trading Update – FY19 year-to-date (first 15 weeks): Digital revenue is 6% higher; Total revenue is 1% lower; Pro forma underlying Costs (excluding investment in new transactions businesses) are 1% higher; Pro forma total Costs are around 7% higher. “Digital and Print revenues have been impacted by lower new listings and auction volumes, particularly in Sydney and Melbourne. For the September quarter, Sydney market new listings were down 8% and auction volumes were down 22%; Melbourne market new listings were down 1% and auction volumes were down 18%. Media revenues have been affected by restructuring of digital media sales to adopt a higher.”
  • Metcash (MTS) – Chris Baddock has been appointed the new Chief Executive Officer of the Liquor pillar
  • Santos (STO) – Mahao Gas Project – Operation update.
  • Capitol Health (CAJ) – Has acquired an additional 2 clinics positioned in the South-West growth corridor of WA.

ANALYST CHANGES

  • Amcor (AMC $13.33) – Trading update. Reaffirmed its guidance and outlook
    • Deutsche Bank has a Buy recommendation with a target price of $16.65. The analyst is happy with the trading update and reiteration of FY guidance because it highlights that headwinds in FY18 were temporary. They think AMC is on track to complete the Bemis acquisition in the March quarter and are positive with shares at a 20% discount to valuation.
    • Morgan Stanley has an Overweight recommendation with a target price of $15.20. The analyst notes that guidance implies a weighting to the second half, consistent with prior commentary and likely reflecting the timing of a recovery in resin and the phasing in of costs to integrate prior acquisitions.
    • Macquarie has an Outperform recommendation with a target price of $16.11 (from $16.27). Earnings growth will be weighted to the 2H because of the timing of costs from integration of acquisitions and restructuring. Amcor expects only modest earnings impact from higher raw material costs in the first half. The analyst thinks the stock is cheap, at a 13% PE discount to the market on FY20 estimates, which incorporates the first full year of Bemis ownership.

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  • Fortescue Metals Group (FMG $3.76) – On-market $500m buyback.
    • Morgan Stanley has an Underweight recommendation with a target price of $3.30. The analyst thinks the buy-back might provide some support to sentiment but their fundamental view of lower price realisation is unchanged.
    • Macquarie has an Outperform recommendation with a target price of $4.70. The analyst was surprised by buyback, although it supports a positive view on the stock, which is currently trading at a material discount to their target. The buyback increases EPS estimates by 2% for FY19 and 3-4% in the medium term.

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  • Netwealth (NWL $7.75) – UBS has a Sell recommendation with a target price of $7.15. The analyst notes NWL continues to lead the platform market regarding net fund flows, although FUA in the September quarter was below UBS estimates. They note comparisons and revenue implications are obscured by new fee cards for large adviser books.

m3

  • Transurban (TCL $10.90) – AGM yesterday.
    • Deutsche Bank has a Buy recommendation with a target price of $13.50. The analyst points out that the price for a controlling stake in WestConnex was above their estimates but the project is strategically important and cements the company’s position in the Sydney market. There are three major projects under development which should support distribution growth over the medium to longer term. They think the weakness around the WestConnex bid is a buying opportunity.
    • Macquarie has an Outperform recommendation with a target price of $11.94 (from $11.87). The analyst observes some slowdown in traffic across the broader market in 1Q, although core assets such as Citylink and M2 remain in a growth phase. The company has confirmed an increase in its stake in M5, completing an 8% acquisition with a further 7% to follow. The analyst finds the stock’s fundamentals still attractive.

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OVERNIGHT

m10

SPI FUTURES -47

US EQUITIES – S&P500 -57 (-2.06%), Dow Jones -546 (-2.13%), Nasdaq -93 (-1.25%).

Main themes

  • Further falls in volatile trading. US President Trump criticised the Fed again, repeated previous comments and saying the Fed is “out of control.”
  • There was short-term optimism about US-China meeting at next month’s G-20 meeting in Argentina.
  • Bonds rallied (yields pulled back) after lower than expected CPI eased inflationary concerns, although still running ahead of the Fed target.

EUROPEAN MARKETS – Big falls. STOXX500 -1.98%, UK FTSE -1.94%, German DAX -1.48%, French CAC -1.92%.

CURRENCIES

  • The US dollar is weaker at 95.03.
  • The Aussie dollar is higher at 71.23c.

BONDS – Yield curve flattened. 2-yr: -1 bp to 2.85%, 5-yr: -7 bps to 2.99%, 10-yr: -9 bps to 3.13%, 30-yr: -9 bps to 3.31%

COMMODITIES

  • WTI crude futures closed down US$2.20 or 3.0% to US$70.97, weighed down by financial market turmoil as well as the 6mb increase in inventories, which was ahead of the 2.6mb expected.
  • Iron Ore – IRESS reports iron ore was up US50c US$70.00 a tonne. The CommSec site says China Import (Fines 62% Fe) was down US65c at US$71.05/dry ton. (CFR Tianjin port)
  • LME metals – Volatile. Cu +0.05%, Ni -0.04%, Al -1.32%. Lead +4.66% the highlight.

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – CPI 0.1% (consensus 0.2%; prior 0.2%) to be up 2.3% yoy (prior 2.7%), Core CPI 0.1% (consensus 0.2%; prior 0.1%) to be +2.2% yoy (unchanged), weekly Initial Claims 214K (consensus 205K; prior 207K) and Continuing Claims 1660K (prior 1656K)
  • European growth downgrades – The German Ministry for Economic Affairs and Energy lowered its GDP growth forecasts for Germany for 2018, 2019, and 2020 to 1.8%. The Ministry expects growth to slow to 1.3% between 2021 and 2023.
  • European data – French CPI -0.2% (as expected, last 0.5%) to be +2.2%yoy (as expected, last 2.3%); Spanish CPI +0.2% (as expected, last 0.1%) to be +2.3%yoy (expected 2.2%; last 2.2%)

QUOTE OF THE DAY

“To this day, I am the least materialistic person I know, because my father didn’t raise me to just go out and buy this or that car. The only reason I wanted to make money as an actor was because I’m passionate about food!” – Hugh Jackman, Australian actor born this day in 1968. As good a reason as any.

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